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Decrypting Chile’s labor environment

With a mixture of emerging and booming economies, political uncertainty and extreme contrasts in business customs, the Americas can never be categorized as one homogeneous whole.

Chile has significantly improved its complexity ranking since last year, strengthening its position as one of the top countries to do business in Latin America and the world. Still, having local knowledge is crucial for any business looking to operate in the country. Here we take a look at how HR & Payroll works in Chile.

Social Security System

Social Security System in Chile comprises:

Pension Fund: every employee must be affiliated to the Pension Fund Administrator (AFP) of choice. The Pension Fund Administrator contribution consists of:

Contribution to Survival and Disability Insurance: 1.41%, covered by the employer

Contribution to Individual Saving Insurance: 10%, covered by the employee

A commission of between 0.41 and 1.54% charged to each affiliate

Health Insurance: paid to either to the state National Health Fund (FONASA), or to a private Health Insurance Institution (ISAPRE), as per the employee’s choice. The minimum legal contribution is 7%.

Labor-related Accident Insurance: This is 0.95% to 3.4% of employee’s salary depending on the risk of the employment activity.

Unemployment Insurance: 2.4 to 3% of the employee’s salary paid to the Unemployment Fund Administrator (AFC).

Hiring/Retrenchment Issues

The work contract must be written.

The Chilean Labor Code allows the employer to terminate an employee’s contract, based on the organisation’s needs.

The termination notice must be delivered to the employee 30 days in advance and personally or by certified mail. A copy of such notice must be sent to the appropriate labour inspector.

The employer may choose to pay the employee 30 days salary, in lieu of such prior notice.

Foreign Personnel

The Chilean Labor Code states at least 85% of a company’s employees must be of Chilean nationality (on companies with more than 25 employees). Exceptions to this rules:

Technical personnel not available locally

Foreigners married to a Chilean

Foreigners who have been residing in Chile for more than five years

Chile does not issue business visas, therefore, potential foreign investors must enter to the country under a “tourist” condition and may stay in the country for up to 90 days (“tourist visa” required for certain nationalities).

Temporary Visas

Visas could be granted to people who have proven family ties or interests in Chile and whose residence is deemed useful and convenient for the country*.

*Issued for a maximum period of one year, renewable for up to two years, after which the foreigner must apply Definite Permanence or leave the country.

The main Temporary Visa types are:

Investors and Traders

Professionals and Senior Technicians

Subject to Contract

Applicants from MERCOSUR countries cannot have any penitentiary or criminal records.

Paid leave

An employee, with more than one year of service, is entitled to an annual paid leave of 15 business days (20 business days in some regions).

Every employee that has served for 10 years or more (continuous or not), to one or more companies, will be entitled to add 1 business day to his/her leave, for every 3 new worked years.

Payroll Cycles

Payroll cycle can be set by days, weeks, monthly or on piece rate terms. However, the unit of time cannot exceed a month.

Valid minimum wage valid as of July 2016 is 257.500 CLP for workers between the age of 18 and 65 years.

It will be increased to 264.000 CLP from January the 1st of 2017. This amount must be modified to a total of 270.000 CLP, from July the 1st of 2017.

Different rates apply for workers over the age of 65 and under 18 years.

Employees who serve overtime must receive an additional payment, corresponding to the 50% of his/hers hourly wage.

HR Legislation

The Chilean Labour Code regulates the various types of work contracts that can be formed, employment regulations and conditions for foreign employees, terms of remuneration and mandatory social security contributions, among other things.

Additional labour regulations are enforced by the Work and Social Prevention Ministry (MTPS).

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